Inside the mind of criminals: How to brazenly steal $100 billion from Medicare and Medicaid

A nondescript suite of offices in a bland building tucked in a quiet Miami suburb seemed as good a place as any for a medical supply company to rent some office space.

But this company rented space two floors above a regional office of the U.S. Department of Health and Human Services' criminal investigative unit. It also tried billing Medicare more than $500,000 for various medical equipment — such as braces, orthotics and wheelchairs — for patients who didn't exist.

During a routine check by HHS' Office of Inspector General, which investigates Medicare and Medicaid fraud, special agents in Florida noticed that a local company had recently changed owners and had another address in their building. But that location didn't have any actual employees. It was no more than a mail drop, a physical location of a shell corporation designed to make it look legitimate on paper, said Omar Pérez Aybar, special agent in charge for Florida.

A deeper look at the company's billing practices revealed what appeared to be Medicare fraud, Pérez Aybar said.

When agents grilled the new owner, he admitted his name was used on corporate business records to conceal the identity of the real owners. Because the investigation is still ongoing and no arrests have been made, agents provided few details identifying the operation. But Pérez Aybar said it was shuttered last year before Medicare lost any money.

That's just one of thousands of examples of how Medicare fraud is flourishing — not only in south Florida, but across the country.

Taxpayers are losing more than $100 billion a year to Medicare and Medicaid fraud, according to estimates from the National Health Care Anti-Fraud Association.

"That's probably a conservative number," Pérez Aybar said. "When we think about all lines of business in Medicare and Medicaid, that's probably a drop in the bucket."

The fraud runs the gamut: billing for unapproved Covid tests, phony billing for wheelchairs, braces and other medical equipment, genetic testing fraud, home health-care billing and a host of other schemes. Investigators say fraudsters have gotten more brazen in recent years — as Washington swiftly doled out trillions of dollars in Covid-19 relief funds and other aid in response to the pandemic.

The proliferation of crime has taxed the inspector general, which has just 450 agents around the country. The amount at stake is staggering: Medicare spends about $901 billion a year on its 65 million beneficiaries, while Medicaid spends $734 billion providing medical coverage to more than 85 million poor and disabled Americans every year, according to the Centers for Medicare and Medicaid Services, which falls under HHS. The inspector general describes the fraud as prevalent and inventive, routinely ensnaring full-time criminals as well as legitimate doctors and health-care professionals gone bad, according to its annual reports.

"You'll be surprised. For money, they'll do anything," he said, asking not to be identified for fear of retribution by people he worked with in the criminal underworld. "It's always been like that. And people keep on — they get caught, they get out, and they'll do it all over again."

He was arrested and charged with running an illegal pill business, according to agents who worked his case. The scheme involved multiple players who were all on the take and got a cut of the windfall from defrauding Medicare, the special agents said.

Describing the scheme, the fraudster said he recruited patients to get a prescription from a doctor that was then filled at a pharmacy and paid for by Medicare. He would then remove the label and "wash" the bottle to make it look new before reselling the pills to a wholesaler, which would sell them back to that pharmacy or another one that was in on the deal, he said. The same pills could be sold and resold multiple times with different phony patients, billing Medicare each time.

It was a lucrative scheme.

"I was low-profile, nobody knew about me. I had everything. I had houses, I had cars, I had watches," he said, adding that he routinely raked in millions from health-care fraud for more than a decade.

Eventually, though, someone who knew him was caught and turned him over to law enforcement in exchange for more lenient treatment, he said. He ended up pleading guilty to health care-related fraud and served three years in prison.

Even when the fraudsters get caught — the reward may outweigh the risk.

"I don't think the government can keep up," he said. "People keep on. They're not gonna stop."

Pérez Aybar said the inspector general is understaffed to handle the never-ending volume of cases. In fiscal year 2021, about 2 cents of every $100 spent by HHS went to oversight and enforcement, according to figures compiled by the inspector general's office.

Fraud is something Medicare and Medicaid take very seriously, Dara Corrigan, deputy administrator of the Centers for Medicare and Medicaid Services, said in a statement to CNBC.

"We continuously work to safeguard taxpayer dollars and strengthen program integrity in our operations by identifying vulnerabilities in the system," she said. "CMS uses every tool we have to lower the risk of fraud and abuse in the Medicare and Medicaid programs, and collaboratively works with law enforcement to identify and investigate fraud and abuse."

"We were shocked to know that there was this amount of cash," Pérez Aybar said. "I think a lot of us hadn't necessarily seen that much, but it was how it had been packaged, vacuum sealed in bricks, again, stuffed into PVC pipes. And it really was, for us, an indication of how brazen this [durable medical equipment] fraud is."

Garces "thought he was a CEO, when in fact he was just a crook," Pérez Aybar said.

Ricardo Carcas, the special agent who oversaw the Garces case, explained how these schemes typically work.

"When I show up, I see that it is the shell that we typically see in this durable medical equipment fraud scheme," Carcas said, pointing to the storefront in a Miami strip mall where Garces set up his fraudulent medical device company. "It was empty pretty much — it just had a desk (and) a shelf with maybe three orthotic braces in there. And it was closed during operating hours."

To prove it was fraudulent, Carcas said he identified the referring doctors who supposedly signed off on patients who were billing their medical equipment to Medicare. None of the patients saw those doctors.

"They purchased a list of patient information," Pérez Aybar said. "They have doctors that they either are using as part of the scheme, they're paying kickbacks, or they may purchase a list of doctors' information as well, and then you start submitting the claims. Once the money gets into the bank account, they have money launderers and mules that they paid to go out and just pull the money out of those accounts."

Pérez Aybar described battling the fraudsters as "almost like the game of whack-a-mole, where we hit one and another pops up."

On the ground, agents fighting health-care fraud see a never-ending scenario.

Take the Miami Merchandise Mart, for instance.

The sprawling, aging indoor mall houses low-cost, wholesale retailers along with numerous medical supply businesses set up to bilk the government, according to investigators.

When CNBC visited the mall in December, there were numerous storefronts that were largely empty, but for the names of the medical supply companies that adorned the entrances.

Pérez Aybar described what agents have found at the mall and elsewhere during previous investigations.

"It is Medicare regulations that you have to have a business, especially in this case for durable medical equipment. And so usually what — when we go out, what I will see is just a bit of a shell. It's an office that's maybe 12 by 15 feet wide," he said.

"There's a desk, perhaps, there's a bit of a curio with one or two different types of braces. They'll have the manuals that Medicare requires that — that they're familiar with. And usually there's some type of partition if let's say we're talking about orthotics because the patient is supposed to come in and actually get fitted."

Along a corridor in the mall, CNBC found a young woman sitting alone at a desk in a small glass-enclosed store called United Med Supply Market Inc. She said it was a medical supply business and gave us the business card with a phone number for the owner. When a reporter called the number a few minutes later, it rang at the woman's desk.

Company President Antonio Lantigua was reached by phone several weeks later. When asked why equipment wasn't visible on site, he said they keep it in other locations.

"We have equipment in other places. We send papers to the company; the company sends equipment to the patients," Lantigua said.

When pressed for more information, he said, "I don't know why you are calling me" and hung up.

Government records show United Med Supply Market billed Medicare for more than $2 million, mostly for wound care.

Following an investigation by the inspector general, the business was suspended from billing for Medicare payments.

Ali Ghraoui, general manager of the Miami Merchandise Mart, told CNBC in a February interview that United Medical vacated that space and that he was working to improve the image of the mall.

Still, as Pérez Aybar points out, there's always another fraudulent operation ready to bilk the system.

"South Florida, without question, is the ground zero for health-care fraud, but it's only one state. There are 49 others and territories where these types of schemes are occurring," he said.